European Manufacturing Contracts at Record Pace
Europe’s manufacturingindustry shrank at a record pace in February as export demand collapsed and companies scaled back production.
A gauge of manufacturing activity declined to 33.5 from 34.4 in January, lower than an initial estimate of 33.6 published on Feb. 20. The index is based on a survey of purchasing managers by Markit Economics and a reading below 50 indicates contraction.
Europe is being dragged into its deepest recession since World War II as the global financial crisis derails purchases of cars and factory machinery, forcing companies to reduce output and cut jobs. Economic confidence has fallen to a record low, banks have tightened access to credit and unemployment is rising, increasing pressure on the European Central Bank to speed up interest-rate cuts.
“The euro zone is headed for further sharp contraction in the first quarter,” said Howard Archer, an economist at IHS Global Insight in London. Today’s report “ heightens already substantial pressure on the ECB to take further action to support economic activity.”
The manufacturing index for Germany, Europe’s largest economy, was at 32.1 in February, lower than the initially reported 32.2, according to a separate report. Italy’s dropped to 35 from 36.1 and the French gauge declined to 34.8 from 37.9, less than the initial estimate.
‘Gloomier’
European car sales plunged 27 percent in January to the lowest level in at least two decades, according to the Brussels- based European Automobile Manufacturers’ Association fast payday loans. Volkswagen AG, Europe’s largest carmaker, said last month it will cut all 16,500 temporary jobs in global operations.
“There is a widespread feeling that growth prospects are gloomier than envisaged,” said Aurelio Maccario, chief euro area economist at UniCredit MIB in Milan.
All 55 economists surveyed by Bloomberg News forecast that the Frankfurt-based ECB will cut its key interest rate by 50 basis points on March 5, bringing the benchmark rate to a record low of 1.5 percent. It has already cut by 2.25 percentage points since early October.
The International Monetary Fund predicts the euro area economy will contract 2 percent this year and Deutsche Bank AG today said the ECB has the “potential” to cut its benchmark interest rate by an unprecedented full point to 1 percent this week to unite divided policy makers.
Such a move could win support from officials concerned the ECB is not doing enough to revive the economy, said Mark Wall, a London-based economist at Deutsche. Policy makers worried rates are sliding too low could also be persuaded that such a move marks a final reduction in the current downturn, he said.
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